TheMacroView Episode 21: Tight Money DID NOT Prolong the Great Depression Part 2

Last Night we debunked the mainstream Keynesian economic theory detailing the great depression, WWII Deficit spending, and how in fact – said spending HURT the economy and caused a net drag for decades to come. Tonight – on a much more concise show, we’re going to discuss the monetarist view, which was presented originally by Milton Friedman in Monetary History of the United States. Milton Friedman and Co-Author Anna Schwartz in a Monetary History of the United States – argued, however that the Fed did NOT do enough. The theory – at the time – was considered revolutionary and caught on strong with a lot of the non-Austrian “Right” side of the political spectrum, because it gave those on the right a way to say “Fiscal Stimulus wasn’t needed”. The argument that Friedman laid out was one that essentially said, and properly so, that low interest rates and quote unquote “EASY MONEY” were NOT synonymous. While true – there are still a lot of flaws with the monetarist view of the Great Depression – Namely that it purely encourages another unsustainable boom by propping up prices before markets fully clear and pulls its evidence from the previous decade and the fact that the Fed kept propping up the market at every downturn. When the Fed finally decided NOT to continue propping up the overvaluation of assets then the market crashed. By Milton Friedman’s account had the Fed just propped up asset prices once again in 1929 and despite the malinvestment and the fact that many businesses were booming on credit with no sustainable organic growth just doesn’t matter.

There’s other issues with what Milton Friedman and the Monetarists say. Tonight we Discuss